Typically, a report revealing a substantial increase in new jobs would be welcome. However, that is not necessarily the case in today’s hyperinflation environment.
Despite the Fed’s attempts to slow economic expansion, unemployment remains at near a half-century low.
On Wednesday, payroll processor ADP revealed the United States added 208,000 new jobs in September. Roughly three out of every four new jobs in the report were in the trade, transportation, and utilities sectors.
ADP also revealed that individuals who switched jobs on average experienced a 15.7% increase in annual pay compared to a year ago. Those who remained with their job still saw their salary rise an impressive 7.8%, the most in the past two years.
Wall Street saw S&P 500 futures fall 0.4% upon the announcement.
A fast-moving economy invites action from the Federal Reserve in the form of interest rate hikes, which causes concern for investors.
Rising interest rates tend to be bad for stocks as companies slow spending on growth. The federal government, however, in its attempt to tame out-of-control inflation, utilizes rate hikes as its primary weapon.
So far this year, the Fed has implemented five rate hikes, the last three of which were substantial at 75 basis points each. Despite the aggressive rate tightening, inflation persists at near record-high levels. The most recent reading showed prices rose 8.3% annually in August, down from the 9.1% summer peak in June but far from the Fed’s target rate of 2%.
The Fed previously made it clear it would not slow interest rate hikes until there is a clear pattern of price reductions in the economy. While there are some indications this is happening, inflation and relatively robust employment still support the narrative that the U.S. economy is too hot.
The United States is far from the only country wrestling with soaring prices. Central banks around the world have similarly been pushing rates higher. Europe in particular has been challenged by rapidly rising energy costs driven by the fallout from Russia’s invasion of neighboring Ukraine.
A recent announcement of a substantial oil production cut from members of the Organization of Petroleum Exporting Countries (OPEC) has only worsened the problem.
The next few months will be critical as it becomes clear whether inflation is slowing. If it is not, more hikes from the Fed are likely. However, if prices drop meaningfully, the Fed may be compelled to cut rates, a scenario Wall Street hopes will materialize.
